Is the U.S. Economy in a ‘Creeping Depression’?

Ambrose Evans-Pritchard covers a lot of familiar ground in his latest commentary at the Telegraph, laying blame for our current condition at the feet of the central bank and offering up what you’ll hear no U.S. politician or policy maker say – that the recent housing/credit boom/bust simply forestalled (and probably worsened) the inevitable decline in living standards here in the U.S. that are now more likely to produce social unrest (or worse).

There is a telling detail in the US retail chain store data for December. Stephen Lewis from Monument Securities points out that luxury outlets saw an 8.1pc rise from a year ago, but discount stores catering to America’s poorer half rose just 1.2pc.
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Such is the blighted fruit of Federal Reserve policy. The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs.

Yet surely Ben Bernanke’s `trickle down’ strategy risks corroding America’s ethic of solidarity long before it does much to help America’s poor.
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Raghuram Rajan, the IMF’s former chief economist, argues that the subprime debt build-up was an attempt – “whether carefully planned or the path of least resistance” – to disguise stagnating incomes and to buy off the poor.

“The inevitable bill could be postponed into the future. Cynical as it might seem, easy credit has been used throughout history as a palliative by governments that are unable to address the deeper anxieties of the middle class directly,” he said.

He deems the U.S. economy to be in a “creeping depression” from which there is no escape since we’ve already expanded credit and debt at all levels about as far as they can go, Keynseian solutions no longer being viable in a world of sovereign debt crises that, someday will wash up on U.S. shores … Good Monday morning to ya!